Hatching the Next Big Restaurant

Andrew and Michelle Muñoz started cooking barbecue as a hobby in their backyard in the San Gabriel Valley in greater Los Angeles. It was good – so good that word got around. For a time, they sold barbecue from that backyard, but the lines down the block alerted the L.A. Health Department, which shut down their burgeoning business.

They faced a common problem: They knew their product was in demand, but they didn’t have the resources to fund a brick and mortar venue. So instead, they signed up with Smorgasburg, a weekly food market that hosts 50-80 vendors every Sunday. Their time at Smorgasburg introduced them to a massive audience, taught them more about business, and put them in a position, eventually, to open what is now Moo’s Craft BBQ, a highly decorated restaurant. 

There’s a strong argument to be made that the economics of hospitality are fundamentally broken. With profit margins collapsing from 15% two decades ago to just 2-5% today, Australia's hospitality sector now operates on the thinnest financial margins of any industry. Meanwhile, high-profile cases of wage, superannuation and tip theft are making headlines with increasing frequency, exposing the industry’s worst-kept secret: the traditional restaurant model has always depended on exploitation.

And the numbers get worse before they get better: Australia's hospitality businesses face the highest failure rate of any sector at 7.45%, with total expenses consuming 80-90% of revenue. Startup costs range from $150,000 for small cafés to over $1 million for full-service restaurants, meaning there's virtually no margin for error. 

Still, dire conditions like these are also, historically, prime conditions for innovation, rebellion and remodelling. Creative alternatives have the potential to challenge the norm and make hay out of seemingly impossible circumstances. 

Enter: the incubators: a new(ish) wave of experimental hospitality breeding grounds giving start-up businesses a low-risk path to business ownership. These models allow emerging operators to test concepts, build skills and develop business ideas without the crushing overhead and long-term commitments that traditionally stifle ventures before they get off the ground.

The Pop-Up Paradigm: Impermanence can be sustainable.

Pop-ups are no new thing, but they certainly popped off during the pandemic, and they’ve become increasingly common in today's dining landscape. It's now commonplace to see chefs and cooks take over cafes, restaurants and bars for service when they would otherwise be closed. With the industry having lost 350,000 workers during the pandemic, many who are popping up are those who hung up their aprons from hospitality roles but are revisiting dreams they'd put aside.

The grassroots nature of pop-ups opens up creative possibilities: revenue sharing, skill exchanges, and space trades that sidestep the rigid profit-driven logic of traditional restaurants. Operators might negotiate a flat hire fee for an empty space, or chefs might pocket food takings and exchange venue hire fees and staff for drinks takings. In most cases, they're a win-win. Businesses can make use of their spaces that lie empty and add an extra income stream while reaching new audiences, supporting emerging cooks, the community and innovation in the industry. But pop-ups are more than just smart business arrangements – they’re acts of agency and resistance, ways to keep doing what you love when the traditional economics of hospitality make it impossible.

Community support proves to be a critical factor. After years of running Malaysian pop-ups in Berlin, chef Kaylin Eu was able to transition to a brick-and-mortar location when her community fundraised nearly €12,000 to support the venture, Ma Makan – demonstrating how grassroots support can provide viable alternatives to traditional restaurant financing.

The format also builds crucial operational resilience: "When you're doing pop-ups, you're into a new space every time,” Eu says. “Doing pop-ups taught me a lot about how to figure out any curveball that comes."

The Year-Long Experiment: The Residence.

Moving beyond the ephemeral nature of pop-ups, Cameron Earl and Nathen Doyle are experimenting with structured impermanence with The Residence at the University of Melbourne's Ian Potter Centre, which offers chefs a year-long residency to try out a restaurant concept. "It's a chef incubator," explains Earl.

More deliberate than a one-off pop-up, The Residence is a chance for chefs to trial the realities of running their own venue, without having to raise half a million dollars to do it. Instead, the chef-in-residence receives a head chef salary, a percentage share in the business, and mentorship from industry veteran owners. Earl and Doyle handle front-of-house operations. "It's like an institutional venue in itself, and it's got this other completely fresh concept that's laid in within it," explains Earl. While the cuisine and chef rotate annually, the style of service, wine program, and overall dining experience remain consistent. It gives diners the comfort of knowing what to expect while still delivering on the excitement of trying something new and scarce. "You've got one window, one opportunity to see something, and then it's gone. But we needed to have it long enough so that [the resident] can actually benefit from the experience," says Earl. 

At The Residence, success isn't measured by longevity but by growth – but not necessarily financial growth. "The intention is actually to showcase a person and their narrative, and it's really about mentoring young people in hospitality," says Earl. The Residence allows chefs to focus purely on their craft while learning the business fundamentals that will serve them whether they eventually open independently or not.

The model also creates opportunities for organic partnerships, whether with investors who discover concepts through dining at The Residence, or potentially with Earl and Doyle, should a longer-term collaboration make sense. This multiplicity of outcomes reflects a broader shift: rather than creating more restaurants destined to fail under impossible economics, The Residence shows how the industry might nurture talent through sustainable, shared models that don't require individual operators to risk everything.

The Smorgasbord Model: A symbiotic ecosystem.

In another fundamentally different ecosystem, Los Angeles' Smorgasburg draws 6,000 to 10,000 people each week. "It offers a brand or a chef or person an opportunity to try out their concept without spending a ton of money on a build-out," says the market’s general manager and curator Zach Brooks. Smorgasburg is open every Sunday, and vendors are required to operate every week. They're free to leave at any time with a couple weeks' notice, but they're invited to vend for as long as it makes sense for their business.

"Consistency, for better or worse, is really at the core of running a successful business," Brooks explains. "Because we're open every single Sunday year-round, we've become sort of almost like opening a restaurant." The market has catalysed dozens of brick-and-mortar successes, with vendors like Tacos 1986 and Broad Street Oyster expanding to multiple locations. The model creates a symbiotic ecosystem where individual success strengthen the whole, while the established market provides credibility and an audience that would take years for solo operators to build. "As a vendor, they learn about staffing, training, making a lot of food in a short period of time, and the increasing importance of branding," Brooks notes.

This puts the focus on education through structure – vendors hone their skills within the safety of Smorgasburg's established reputation and built-in audience. "In the end you're left with a business that will ultimately live or die by the quality of the experience, the quality of the food, and what work you put in as a business owner to getting people to come and then getting them to come again over and over again," he explains. The market provides the stability that lets operators focus on mastering these fundamentals rather than fighting for survival from day dot.

The Future 

These models reveal three key insights for the industry: mentorship and infrastructure sharing may be more valuable than traditional investment; consistency of experience doesn't require consistency of offering; and community-supported businesses prove more resilient than those dependent solely on profit margins.

Most importantly, they challenge hospitality's fundamental assumption that restaurants must be built to last forever. Perhaps the way forward isn't fighting the economic headwinds that have made traditional restaurant ownership increasingly untenable, and instead creating systems that help great operators emerge, test, and thrive – whether that means eventually opening permanent venues or finding success within these alternative models. As Earl puts it, the choice facing the industry is simple: “Do we want to make money, or do we want to contribute something to the city?” These incubation models suggest the industry's future lies in choosing the latter.